1 MA (ECONOMICS) FINAL SEMESTER SUBJECT CODE: ECO501 DEVELOPMENT ECONOMICS 2 BOARD OF STUDIES 1. Prof. S.K Nayak Head Chairman (Ex-officio) Dept. of Economics, RGU Member 2. Prof. A. Mitra Dept. of Economics, RGU Member 3. Prof. (Ms.) V. Upadhyay Dept. of Economics, RGU Member 4. Prof. N.C Roy Dept. of Economics, RGU Member 5. Prof. M P Bezbaruah Dept. of Economics, Guwahati University, Guwahati Member 6. Dr. Raju Mondal Dept. of Economics, Assam University, Silchar, Assam Member Secretary 7. Dr. LijumNochi Dept. of Economics, RGU Authors: - Prof. N.C. Roy, Dept. of Economics, RGU (Unit: I) Dr. Lijum Nochi, Dept. of Economics, RGU (Unit: IV) Dr. P. B. Baruah, Dept. of Economics, RGU (Unit: I, II, VII & VIII) Dr. Maila Lama, Dept. of Economics, RGU (Unit: V, VI, IX & X) 3 SYLLABI-BOOK MAPPING TABLE PAPER NO: MAECO501 DEVELOPMENT ECONOMICS SYLLABI Mapping in Book Unit – I :CONCEPT OF ECONOMIC DEVELOPMENT Economic Growth and Economic Development - Economic Development - Measurement of economic development problems - Obstacles to Economic Development – Technology - Kuzets’ characteristics of Modern Economic Grash. Unit – II : THEORIES OF UNDERDEVELOPMENT Dualism and Backward Bending Supply Curve - Vicious Circle of Poverty - Nelson’s Low Level Equilibrium Trap - Critical Minimum Effort - Paul Baran’s Theory of Underdevelopment - Myrdal's Theory of Cumulative Causation. UNIT- III : CLASSICAL, SCHUMPETERIAN AND MARXIAN THEORIES OF GROWTH Adam Smith’s theory of Growth - Multhus Theory of Growth - Ricardo’s Theory of Growth - Schumpeter’s Theory of Growth - Marxian theory of Reproduction. UNIT-IV : NEO-CLASSICAL AND CAMBRIDGE MODELS OF ECONOMIC GROWTH Harrods Model of Growth – Domars Mode of Growth - Solow Growth Model - Cambridge Model of growth (Joan Robinson) UNIT – V : TECHNICAL CHANGE Hicksian and Harrodian Versions of Neutral Technical Progress - Labour and capital Augmenting Technical progress (Harrod and Solow versions) - Disembodied and embodied Technical Progress - Overview of Endogenous growth theory - Growth under vintage capital model. UNIT-VI : APPROACHES TO ECONOMIC DEVELOPMENT Traditional approaches to Development - Rodan’s Theory of big push - Nurkse's 4 Model of Balanced Growth - Unbalanced Growth –Hirschman’s Strategy - Ranis –Fei Model. UNIT –VII : HUMAN CAPITAL AND SOCIAL CAPITAL Human Capital - Process of Human Capital Formation - Human Capital and Unemployment - Role of Market in an Economy - Role of Government in Developing Economies - Role of Community in Economic Development. UNIT– VIII : ALLOCATION OF RESOURCES AND ECONOMIC DEVELOPMENT Need for Investment Criteria in Developing Countries - Rate of Turnover Criterion - Social Marginal Productivity Criterion - Marginal Per Capita Re- investment Criterion - Time Series Criterion - Little- Mirrlees Cost Benefit analysis of Projects UNIT – IX : DEVELOPMENT PLANNING Economic Planning - Input-output Analysis - Sectoral Projection in Planning: Plan models in India - The Fifth Plan Model - Plan in a Market Oriented Economy. UNIT X : TRADE AND POLITICAL ECONOMY OF DEVELOPMENT Import substitution and export led growth - Krueger’s Model of Rent seeking society - Institution and Development: Contribution of Stephen Knock and Philip Keefer - Foreign Direct Investment, Institutional Investment Development. 5 CONTENTS UNIT-I: CONCEPT OF ECONOMIC DEVELOPMENT 1.0 Objectives 1.1 Economic Growth and Economic Development 1.2 Economic Development 1.3 Measurement of economic development problems 1.4 Obstacles to Economic Development 1.5 Technology 1.6 Kuzets’ characteristics of Modern Economic Grash 1.7 Questions 1.8 Key Word 1.9 Suggested Reading UNIT-II: THEORIES OF UNDERDEVELOPMENT 2.0 Introduction 2.1 Objective 2.2 Dualism and Backward Bending Supply Curve 2.2.1 Characteristics of Dualistic Society 2.2.2 Concept of Backward Bending Supply Curve 2.2.3 Policy Implication of Social Dualism 2.2.4 Criticism of Boeke’s Theory of Social Dualism 2.3 Vicious Circle of Poverty 2.3.1 Causes of Vicious Circle 2.3.2 Solution for Vicious Circle of Poverty 2.4 Nelson’s Low Level Equilibrium Trap 2.5 Critical Minimum Effort 2.6 Paul Baran’s Theory of Underdevelopment 2.7 Myrdal's Theory of Cumulative Causation 2.8 Key Words 2.9 Short Questions 2.10 Long Questions 2.11 Suggested Readings UNIT-III: CLASSICAL, SCHUMPETERIAN AND MARXIAN THEORIES OF GROWTH 3.0 Introduction 3.1 Objectives 3.2 Adam Smith’s theory of Growth 3.3 Multhus Theory of Growth 3.4 Ricardo’s Theory of Growth 3.5 Schumpeter’s Theory of Growth 3.6 Marxian theory of Reproduction 3.7 Key Words 3.8 Sample Short Question 3.9 Sample Long Questions 3.10 Suggested Readings UNIT-IV: NEO-CLASSICAL AND CAMBRIDGE MODELS OF ECONOMICGROWTH 6 4.0 Introduction 4.1 Objectives 4.2 Harrods Model of Growth 4.2.1 Introduction to Labour Market 4.3 Domars Mode of Growth 4.4 Solow Growth Model 4.5 Cambridge Model of growth (Joan Robinson) 4.6. Questions 4.7 Key Words 4.8 Suggested Readings UNIT – V: TECHNICAL CHANGE 5.1 Introduction 5.2 Objective 5.3 Hicksian and Harrodian Versions of Neutral Technical Progress 5.3.1 Hicks-neutral technical changes 5.3.2 Harrod Neutral Technical Progress 5.4 Labour and capital Augmenting Technical progress (Harrod and Solow versions) 5.4.1 Harrod Version 5.4.2 Solow Version 5.5 Disembodied and embodied Technical Progress 5.5.1 Disembodied Technical Progress 5.5.2 Embodied Technical Progress 5.6 Overview of Endogenous growth theory 5.6.1 Arrow’s learning by doing model 5.6.2 The Romer’s Model 5.6.3 The Lucas Model 5.7 Growth under vintage capital model 5.7.1 Limitations 5.8 Let Us Sum UP 5.9 Key terms 5.10 Questions 5.11 Further/Suggested Readings UNIT-VI: APPROACHES TO ECONOMIC DEVELOPMENT 6.1 Introduction 6.2 Objectives 6.3 Traditional approaches to Development 6.4 Rodan’s Theory of big push 6.5 Nurkse's Model of Balanced Growth 6.5.1 Size of market and incentive to invest 6.5.2 Determinants of the size of market 6.5.3 Productivity and economic development 6.6 Unbalanced Growth –Hirschman’s Strategy 6.6.1 Criticism of unbalanced growth theory 6.7 Ranis –Fei Model 6.8 Let us sum up 6.9 Key Terms 6.10 Long Questions 6.11 Further/Suggested Readings. 7 UNIT –VII: HUMAN CAPITAL AND SOCIAL CAPITAL 7.0 Objectives 7.1 Human Capital 7.2 Process of Human Capital Formation 7.3 Human Capital and Unemployment 7.4 Role of Market in an Economy 7.4.1 Market Efficiency 7.4.2 Sources of Market Failure 7.5 Role of Government in Developing Economies 7.5.1 Government Failure and Washington Consensus 7.6 Role of Community in Economic Development 7.6.1 Trust as an Economic Variable and Prisoner’s Dilemma 7.6.2 Role of Community in Providing Local Public Goods 7.6.3 Community in the Management of Forest Resources 7.6.4 Economics Social Norms 7.6.5 Critical Evaluation of Social Capital Approach in Economic Development 7.6 Key Words 7.7 Short Questions 7.8 Long Questions 7.9 Suggested Readings UNIT – VIII: ALLOCATION OF RESOURCES AND ECONOMIC DEVELOPMENT ` 8.0 Objectives 8.1 Need for Investment Criteria in Developing Countries 8.2 Rate of Turnover Criterion 8.3 Social Marginal Productivity Criterion 8.4 Marginal Per Capita Re-investment Criterion 8.5 Time Series Criterion 8.6 Little- Mirrlees Cost Benefit analysis of Projects 8.7 Key words 8.8 Short Questions 8.9 Long Questions 8.10 Suggested Readings UNIT – IX: DEVELOPMENT PLANNING 9.1 Introduction 9.2 Objectives 9.3 Economic Planning 9.3.1 Rationale for planning in developing economies 9.4 Input-output Analysis 9.4.1 Input-output Analysis (closed model) 9.4.2 Input-output Table (open model) 9.4.3 Hawkins–Simon Condition 9.4.4 Samuelson Substitution Theorem 9.5 Sectoral Projection in Planning: Plan models in India 9.5.1 Mahalanobis Model of Planning 9.5.2 Mahalanobis Four-Sector Model 9.6 The Fifth Plan Model 9.7 Plan in a Market Oriented Economy 8 9.8 Let us sum up 9.9 Key terms 9.10 Long Questions 9.11 Further/Suggested Readings UNIT X: TRADE AND POLITICAL ECONOMY OF DEVELOPMENT 10.1 Introduction 10.2 Objective 10.3 Import substitution and export led growth 10.3.1 Import substitution strategy 10.3.2 Export–led Growth Strategy 10.4 Krueger’s Model of Rent seeking society 10.5 Institution and Development: Contribution of Stephen Knock and Philip Keefer 10.6 Foreign Direct Investment, Institutional Investment Development 10.6.1 Foreign Direct Investment and Economic Development 10.6.2 Foreign aid and Economic Development 10.7 Let Us Sum Up 10.8 Key Terms: 10.9 Questions 10.10 Further/Suggested Reading 9 INTRODUCTION OF THE BOOK The economic development refers to the problems and challenges faced by the economics at the labour strata of development hierarchy. Right from Adam Smith to Karl Mark and Keynes the study of economic development has engrossed the attention of economists. Although before the 20th century the economists were mainly interested to understand the problems of Western European nations.It was only after the Second World War, the economists were shown their concern for the less developed countries and thereby formulate the theories and models of economic development and growth. This book would examine the problems of economic development of underdeveloped countries. To understand the problems of economic development of LDCs countries the book is divided into ten units- In the very first unit, the book has elaborately discussed the concept of economic development, problems and measures, obstacles and a model. In the second unit, we have discussed the factors responsible for the economic underdevelopment of underdeveloped countries and also suggested the policies to stimulate the pace of development.